An Arkansas legislative panel on Thursday advanced a proposed contract with a Florida-based firm that served as the vendor for the first year of Arkansas’ Education Freedom Accounts to operate the online platform for the next four years.
The proposed $8 million contract with Kleo Inc. of Hollywood, Fla., which does business as ClassWallet, would begin Dec. 1 and end Nov. 23, 2028. If the proposed contract with the firm is extended for three one-year terms, the total projected cost would be as much as $13.9 million.
After two state lawmakers raised questions about the proposed contract, the Legislative Council’s Review Subcommitee on Thursday recommended that the Legislative Council complete its review of the proposed contract. The council will consider the recommendation Friday.
More than a month ago, the state Department of Education informed Bloomington, Ind.-based Student First Technologies that its contract would end Dec. 31. State Department of Education Secretary Jacob Oliva said in an Oct. 8 letter to Student First Technologies co-founder and CEO Mark Duran that the company failed to meet deadlines set out in the agreement and that services that have been provided were plagued with “significant problems and delays.”
ClassWallet served as the vendor for the first year of the Education Freedom Account program, and received a one-time $49,000 service fee for voucher and tutoring programs it set up, as well as a 2.5% transaction fee on each voucher payment, according to the state Department of Education.
In its proposal document for the new contract, ClassWallet requested a $75,000 implementation fee.
The $75,000 is the implementation fee for the new contract with ClassWallet, state Department of Education spokeswoman Kimberly Mundell said Thursday after the legislative panel’s meeting. ClassWallet will charge 1.85% on each transaction processed, she said.
The Education Department issued its new request for proposals Oct. 9 and received bids from five companies: ClassWallet; ACE Services, doing business as ACE Scholarships; Merit International; Primary Class, doing business as Odyssey; and Pearl. Of those, all but Pearl received scores from an Education Department-appointed evaluation committee.
ClassWallet received the highest-weighted technical proposal, cost and total scores, according to an evaluation document. The firm received a total score of 944. Odyssey received the second-highest score at 815.62. ClassWallet received the highest cost score because it bid the lowest total cost. Odyssey’s proposed total cost was $14,448,000, making it the second-cheapest of the bids. ACE Scholarships received the lowest score, at 468.84. The proposed total cost of its proposal was $28,595,000, the evaluation document indicates.
In late May, the Arkansas Legislative Council voted to review the contract with Student First Technologies, and some lawmakers at that time expressed confusion about the state Department of Education’s decision to shift away from ClassWallet and questioned whether Student First Technologies would be able to fulfill its obligations.
During Thursday’s Review Subcommittee meeting, state Rep. Fran Cavenaugh, R-Walnut Ridge, said a good portion of the problems are the fault of Student First Technologies, but the state Department of Education also “made some missteps … during that process.
“During that misstep process, a lot of parents and people using them actually lost a little faith in the ability of the (Educational) Freedom Accounts, and I know we are moving to a new contract,” she said. “This new contract though isn’t an inclusive contract. It only deals with a certain part of it.”
Under the proposed contract, Cavenaugh questioned what assurance “do we have that the department is going to be able to handle their part of what needs to be done with this?”
In response, Darrell Smith, an assistant commissioner for school choice and parent empowerment at the state Department of Education, said he respectfully disagrees “just a touch” with Cavenaugh.
“I think 99% of all the problems we had stemmed from the previous vendor that we are moving from, which created additional problems,” he said. “The new contract actually is pretty inclusive because they are partnering with the application portion of that … so we feel pretty confident that it is an inclusive contract.”
The state Department of Education will deal with the approval process for the Educational Freedom Accounts like it has done in the past, Smith said.
“I feel very confident that we will be able to manage this process and the approval process in a much more seamless manner than we did before,” he said.
Cavenaugh pressed Smith on why he believes that.
Smith said that “we are more familiar with ClassWallet” and he believes that the company’s system is a little bit easier “for us to manage” and there are not as many problems on the front end.
“The previous vendor had a number of problems that we were having to solve on the go, and so it was hard to improve things when (the) system was broken,” he said. “It was not the approval process that was broken. It was the process of getting us the information so that we could approve it.”
The state Department of Education didn’t seem to have “very many problems at all” in the approval process for the Educational Freedom Accounts during the first year, Smith said.
“While we will have more people in this process this year and more participants in the program, we do believe the approval process will go smoothly,” he said.
Cavenaugh questioned why the state Department of Education contracted with Student First Technologies several months ago, if it had such a good experience with ClassWallet.
Smith said “we went through the RFP (request for proposal) process as it was stated and defined by law” and Student First Technologies won that contract.
“You all expressed your concerns,” she said. “We had the same concerns and we talked with them about those concerns in the discussion phase. They assured us that they could mitigate those concerns and build up to meet our expectations for this program and for the state of Arkansas. They did not. We also promised you that if they did not fulfill their part of the contract that we would leave, which we are, and so we are just kind of holding ourselves and you all to the word that we gave back six months ago.”
State Sen. Kim Hammer, R-Benton, questioned whether there are any financial penalties that could be recouped from Student First Technologies for failing to provide the services that the company agreed to provide under the contract with the state Department of Education.
In response, Greg Rogers, assistant commissioner of fiscal and administrative services at the state Department of Education, said Student First Technologies has agreed to repay a little over $300,000 of the total amount that they have received thus far for their services.
The Education Freedom Accounts were authorized by Gov. Sarah Huckabee Sanders’ education package overhaul called the LEARNS Act under Act 237 of 2023. The program greatly expands the use of state taxpayer funding for tuition and other private and home school expenses.
In his October letter to Student First Technologies, Oliva said the “extended notice” given to the firm regarding the end of their contract was meant to “minimize disruption” to families and schools. There are 14,297 funded participants in the 2024-2025 school year, according to Mundell.
Until the Dec. 31 termination occurs, the Department of Education said it expects Student First Technologies to “fulfill its obligations as required by the contract,” and to cooperate with the agency and any entity designated by the agency. Should the firm fail to do so, the agency “will be obligated to pursue punitive contractual damages and all associated costs and attorney’s fees,” Oliva said.
The Education Department expects more than 20,000 participants in the voucher program in the next school year, with more than $150 million estimated for scholarship funds. ClassWallet will be required to “ensure a smooth transition for students, families and providers participating in the program, and continue full implementation of the program through future expansions,” according to the solicitation document.
In order to do so, the firm will be required to work with Student First Technologies to transfer information and data and be able to assume payment processing by Jan. 1. The solicitation document also requires the firm to have “available sufficient staff or access to a call center to respond to participant questions and inquiries, which may be at a higher-than-average volume during the transition period.”
The number of student applicants for the Education Freedom Account program increased from 6,495 students in 2023-24 to 18,490 for the 2024-25 school year, according to a recent report.
Several mass emails from the Education Department to families participating in the Education Freedom Account program throughout September and early October relate the dissatisfaction both groups experienced in working with Student First Technologies since the start of the school year.
Information for this article was contributed by Josh Snyder of the Arkansas Democrat-Gazette.
